Synthetic Assets: Bringing Real-World Value with Asset Tokenization on Blockchain
The revolution of blockchain technology paved the way for new innovative solutions along with disrupting the existing infrastructure across different industries. One of the sectors that blockchain technology has largely impacted is the financial ecosystem. Decentralized Finance or DeFi refers to open-source applications in the banking and financial sector built on the blockchain network.
DeFi protocols enable an inclusive financial ecosystem by facilitating services like credit, lending, insurance, decentralized exchanges, prediction markets, banking payments, cross-border remittance, and more on a decentralized and permissionless architecture. One of the leading sectors where DeFi enables innovation is the concept of synthetic assets.
What are Synthetic Assets?
Synthetic assets refer to digitizing real-world assets on the decentralized blockchain ledger. Synthetic assets are digitized tokens representing an underlying asset or collection of assets. The concept of synthetic assets that enable digitizing the ownership of real-world assets presents value for investors to gain price exposure without having to own assets physically.
In simple terms, synthetic assets are tokenized derivatives that derive their value from an underlying asset. These blockchain-based cryptocurrency derivatives are similar to traditional derivatives. But, synthetic assets offer many possibilities and benefits by tokenizing real-world assets on a decentralized ledger.
With tokenized derivatives, you can trade stocks of Apple Inc. (AAPL) without holding the AAPL asset itself. Synthetic assets allow gain exposure to the synthetic of AAPL, which mimics the behavior of AAPL by tracking its price using oracles.
How Synthetic Assets Differ from Traditional Derivatives?
The fundamentals of synthetic assets are similar to that of traditional derivatives. However, tokenized derivatives unlock value from underlying assets like stocks, equities, commodities through the potential of blockchain technology.
Tokenization of any asset allows digitizing a tangible asset and raising it as tokens on the blockchain. These tokens represent ownership in the underlying asset. This enables synthetic assets to offer advantages that traditional derivatives lack.
- Inclusive — Blockchain-based synthetic assets are managed on a permissionless infrastructure. Anyone can mint tokenized derivatives using an open-source platform like Octopus Protocol.
- Fractional Ownership — Decentralized derives enable investments in assets requiring high liquidity through fractional ownership. In other words, an investor can purchase fractional shares of a company stock allowing a wider investor participation.
- Diversify — With tokenized derivatives, an investor can mint a synthetic asset representing a collection of assets. This allows investors to diversify their overall portfolio.
- Worldwide Liquidity — Synthetics can be traded on a globally borderless infrastructure unlocking a new level of liquidity for retail and institutional traders.
- Borderless Transfers — Platforms like Octopus Protocol facilitate the exchange of synthetic assets in the form of tokens that you can easily send or receive between cryptocurrency wallets on a borderless infrastructure.
The Possibilities of Synthetic Assets
Synthetic assets function with automated smart contracts eliminating the need for a trusted intermediary or centralized institution. By removing third-party and empowering a decentralized architecture, synthetic assets open up a wide range of possibilities.
For instance, synthetic assets enable investments in a new asset class like crypto commodities. For instance, with tokenized derivatives, an investor can buy shares of Bitcoin mining power or hashrate, thereby allowing them to reap their benefits without owning or operating high-end machines.
Additionally, synthetic assets also offer the possibility to earn yield or rewards by staking or holding a token for an extended period of time. These benefits and possibilities make synthetic assets an attractive opportunity for investors.
Synthetic assets provide investors the benefits of traditional assets and their derivatives without holding them. Moreover, it offers a digital ecosystem unlocking innovative possibilities through tokenization and blockchain technology.
Tokenized derivatives are revolutionizing the financial ecosystem by enabling infrastructure for borderless transactions, worldwide liquidity, and accessibility to investors. Moreover, it offers investment opportunities that are otherwise impractical for traditional derivatives.
About Octopus Protocol
Octopus Protocol, a robust DeFi protocol built on the Binance Smart Chain (BSC), allows issuance, trade, and management of decentralized derivative assets. Leveraging the technological innovation of blockchain, Octopus Protocol facilitates a platform that offers unparalleled access and exposure to real-world assets, thereby enabling a fair way to engage with synthetic assets and giving equal opportunities to access derivatives.
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